#5 in our “Key Solar Concepts” series.

State solar tax credits give you money off your state income tax bill when you install solar panels. Unlike rebates, which are often taken off the up-front price of a solar installation, tax credits are usually only available if you owe money to the state based on your income (the exception is Louisiana, which will give you money back even if you don’t owe taxes).

State solar tax credits used to be pretty widespread in the U.S., but you can still find them in many states. They are a crucial way for people who want to go solar to save a bundle of money on their investment and make a good profit over the long term.

What is the reason for solar tax credits?

Strong solar tax credits were (and are) designed to bring down the first-year cost of solar to make it more appealing to the average homeowner and rapidly increase the number of solar installations. That plan has worked wonders for the solar industry. With state solar tax credits, the federal government’s own solar tax credit and solar rebate programs, the late 2000s and early 2010s saw a rapid expansion of solar power. Take a look at this chart from Greentech Media Research and the Solar Energy Industry Association:

With that rapid expansion came a similarly-large increase in the production of solar equipment, which just as dramatically brought down prices for solar. Check out this chart, which shows nearly the same installation data, with the addition of the orange line showing how prices fell as installation increased:

How does a solar tax credit work?

Every state has its own rules for how solar tax credits work. Some give you a set amount based on your system size—i.e., a certain number of dollars per watt of energy generation capacity—and some give you a percentage of the total cost. Either way, solar tax credits generally mean thousands of dollars off your tax bill.

What if you don’t owe thousands of dollars in taxes?

We get that most people’s state tax bill isn’t going to be huge. Most state income taxes are pretty low, and some states don’t even have income taxes! The good news is many states allow you to carry over the unused portion of your solar tax credit for several years. Here’s one more quirk: some states have a cap on how much of your total tax bill can be reduced by a solar tax credit.

Let’s look at an example: South Carolina offers a solar tax credit of 25% of total installed costs. But the state only allows you to reduce your one-year tax bill by 50%. The state also stipulates that unused credit may be carried forward for 10 years. So if you owe $2,000 this year, but you’re entitled to a $5,000 credit, you can take a $1,000 credit, and keep taking credits of up to 50% of your tax bill until the whole amount is recovered (within 10 years). Pretty sweet!

Do all states have solar tax credits?

Not all states offer a tax credit for installing solar. In fact, most states have never had one. And sadly, some of the best solar tax credits—in states like Arizona, California, and North Carolina—have gone the way of the dodo. You see, now that solar is cheaper than ever, incentives like tax credits are not as necessary to spur growth in the industry. The credits had the desired effect and they’re no longer needed, especially since the federal solar tax credit has been extended until 2022.

But there’s still good news for residents of certain states. Even with solar prices lower than ever, there are still tax credits out there. Here they are:

Rank

Name

Tax Credits

Grade

1st

Louisiana

$2,000/kW, up to $10,000

A

3rd

Hawaii

35% or $5,000

A

4th

New York

25% up to $5,000

A

5th

Iowa

18% of Costs, up to $5,000

B

6th

New Mexico

10% up to $9,000

B

7th

Utah

25% up to $2,000

B

8th

Idaho

$370/year for 4 years

B

9th

South Carolina

25% up to $3,500 or 50% of taxpayer’s liability

B

10th

Arizona

25% capped at $1k

C

11th

Massachusetts

15% up to $1,000

C

12th

Montana

Maximum Incentive: $500 per individual taxpayer; up to $1,000 per household

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Solar Power Rocks provides free comprehensive guides to solar policy and incentives for all 50 states and the District of Columbia, along with hundreds of helpful and informative articles about recent solar news and general information related to home solar power. For media inquiries, general questions, or to report an error, you can reach us here.